Refinance Tips: How to Get a Good Deal
So, you've decided that you're going to refinance your mortgage or some other loan. Now you need to work out how to go about it, and how to avoid falling into any of the traps that litter this industry. Allow me to share with you some tips on refinancing, that will help you achieve that tough objective, of refinancing without pain.
Brokers: advantages and disadvantages
Some people swear that all mortgage brokers are scoundrels, and that they'll do nothing more than mark up the cost of your refinance. Others say that a good broker is one of the rare rocks you can stand on in this industry, and a useful way to orient yourself and find the best deals.
So, what's the truth? Should you use a broker for your refinance, or should you go it alone? Generally, I'm on the pro-broker side, for all but the most knowledgeable mortgage buyers. Why is that? Because it is theoretically possible to beat the broker by finding the deal he would have suggested by yourself. But that's only possible if you invest a lot of time in looking at every lender in the business, and comparing their prices rigorously. It also only works if you have the same skill and knowledge as your broker, and the experience-born ability he or she will have to understand the true meaning of a refinance deal. Sure, if you have some knowledge of the industry, go ahead and try to survive without a broker. But for the rest of us, a broker is the way to go.
When you're choosing a broker, it's more important than ever to rely on reputation. A good broker lives or dies by his reputation, gets a lot of his custom by word of mouth, and thus knows that he has to keep every customer satisfied, and get them the best deal no matter what. If his customers start to regret the mortgages he set up for them, then word-of-mouth referrals dry up, and the broker finds his business going south.
All the paperwork
Before anybody offers you a refinance deal, they're going to want to see all the paperwork. That means you're going to have to go into your loft or you back room, and drag out all those files you hoped you'd never have to look at again. It's a good idea to get this done first, because you'll want to be focussing on the details of the loan itself at a later date, not on whether you can find a financial statement from 18 months ago. It's a shame that even in this internet age everything turns so much on physical documentation of ink on paper - but, for now at least, that's the world we live in, and as the borrower you just have to live with it.
Play the reputation game
I talked above about how you need to look a broker's reputation when you are choosing which broker to enlist to help you find your refinance deal. If you decide not to use a broker, then you need to go through the same kind of reputation-checking for every lender you are considering. You'll want to search the internet for their name, and see if you can turn up any horror stories of refinance arragements that went wrong. Ask friends and neighbours for any opinions or experiences with the lender. Some not-for-profit organizations and even state agencies maintain records of mortgage and mortgage refinance lenders - if there are any of these operating in your area, be sure to take advantage of them.
Doing all that should give you a good picture of their reputation, and this will let you filter out the complete scoundrels. But it won't tell you whether or not you're getting a good deal - for that you need to check the terms, line by line.
Deal or no deal?
Don't be seduced by the headline rate a refinance lender offers you, and above all don't let yourself become 'cash-dazzled', and taken in by the prospect of immediate money from a refinance. Get everything in writing, and spend some time looking through the contract line by line, examining the small print. It will contain some legally-mandated figures such as a 'Good Faith Estimate' of the cost, but refinance lenders have learned how to make their policies produce a good showing for these figures, even when they are in fact sub-optimal. So you'll need to go through the refinance package in detail, checking everything. Don't do it alone. If it's a high-value refinance then you might be able to justify the cost of hiring an accountant to check through it with you. If not, at least call in a favour from a savvy friend, and get a second pair of eyes looking through the document.
Avoid the predators
When you refinance your mortgage, it needs to be your decision. If you are contacted by an organization offering to save you money on your mortgage through refinancing, be very wary of them. These kinds of company tend to make their money by picking up customers who are not very financially knowledgeable, and offering them refinance deals which look better than they really are. Even if it turns out that refinancing could save you money, don't get refinancing from a company which spends all its money on advertising. Instead, go through the procedures I mentioned above: shop around, ask for advice, and generally rely on your diligence rather than on trust to get you a good deal.
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